Alliance Boots Refutes Tax Avoidance Compaint by War on Want to OECD

Anti-poverty campaigners have accused Alliance Boots of breaching internationally agreed tax and disclosure guidelines in a formal complaint to the Organisation of Economic Co-operation and Development.

War on Want, a London-based charity, and US labour union federation Change to Win have accused the pharmaceutical giant of avoiding tax in the UK by shipping out profits in transactions with Luxembourg-based entities owned by the firm's executive chairman, Stefano Pessina.

Tax avoidance is legal but the complainants have alleged that Alliance Boots was not acting within the spirit of British tax laws, a requirement of the OECD guidelines.

They have accused the company of not disclosing a conflict of interest with Pessina over its transactions with these entities in which the multinational firm's debt was traded in a circle, allegedly enriching the executive chairman's tax haven-based finance businesses. War on Want said its complaint was founded on research into public filings by Alliance Boots and the other entities.

The company responded: "Alliance Boots categorically refutes these allegations, which are inaccurate and we believe defamatory, and it is taking legal advice on this matter.

"The group practises strong corporate governance with full transparency in its financial disclosures which are contained in its annual report.

"We conduct our business and organise our tax affairs strictly in compliance with all applicable laws (including legislation in the UK) and always strive to maintain the highest ethical standards. In addition, the group is fully committed to continue investing in the UK, contributing to the economy and reinforcing its position as a major employer."

During the onset of the credit crisis in 2007, Kohlberg Kravis Roberts & Co LP and Pessina snapped up Boots in a leveraged buyout. Five years later, US drugstore chain giant, Walgreen, bought 45% of the company.

The complaint claimed that Alliance Boots breached chapters III (disclosure) and XI (taxation) of the OECD's Guidelines for Multinational Enterprises, a set of principles agreed to by member country governments which respond to alleged violations through a National Contact Point.

It all hinges on a purportedly circular set of transactions between Alliance Boots and financial entities which the compaint claimed that Pessina owns.

Two Irish finance firms, Walvis Ltd and Walvis 2 Ltd, are owned by Dascoli Finance and were involved in some of the biggest of these transactions. Dascoli is thought to be owned by Pessina.

Both Walvis companies purchased as much as £220m of Alliance Boots debt at a time when corporate debt was cheap. Much of these debt purchases are alleged by the campaigners to have been funded with £150m raised from Alliance Boots, which had bought "profit participating notes" in the two firms. These are essentially loans whereby the lender benefits from the profits of the borrower.

In 2013, Alliance Boots repurchased the debt from the entities which generated as much as a 60% return, according to the OECD complaint.

"The complainants allege that Alliance Boots violated the Disclosure Guideline by failing to disclose important information that would allow the public and stakeholders to gauge whether the terms of the transactions were fair and transparent, whether the company properly handled potentially significant conflicts of interest, and the adequacy of its corporate governance policies," said War on Want and Change to Win.

"The company only disclosed skeletal facts about the transaction and did not disclose key information about the terms and purpose of the transactions that would demonstrate whether they may have amounted to self-dealing."

On taxation, the organisations claimed that Alliance boots shifted profits offshore to escape HMRC's clutches. They accused Alliance Boots of making interest payments on the debt held by the related offshore entities, rather than classifying them as dividend payments, to avoid taxation.

"Alliance Boots shifted profits abroad, by using complex financial instruments, shell financial companies in Luxembourg, and payments from one party to finance the purchase of company debt in a circular manner that may have benefited those connected with the Luxembourg-based finance companies," they said.

"Just as concerning, the company makes use of tax haven laws that permit opacity, meaning that this structure is not transparent to the public and stakeholders. As a result, current beneficial ownership of the related entities is not known and tax authorities may not be able to collect the correct tax."

The complaint was made to the UK's National Contact Point for the OECD at the Department for Business, Innovation and Skills. UK officials will review the complaint.

It is not the first time War on Want has sounded the alarm over Alliance Boots's tax affairs. In a separate report in October it accused Alliance Boots of having avoided £1.1bn in corporation tax since it delisted from the London Stock Exchange in 2008 after being taken over by a private equity group.